EU escalates pressure on Greece over bailout deal

EUROPE PILED pressure on Greek leaders as they resisted demands for a swingeing round of wage and pension cuts in the country’s second bailout.

In a weekend of drama and brinkmanship in Athens, the stand-off between the Greek unity government and the EU-IMF-ECB troika prompted renewed anxiety about the feasibility of the new rescue plan.

All elements of the package, which has been under negotiation since October, need to be in place within days to prevent the country defaulting on a €14.5 billion debt next month.

However, Greek leaders have taken umbrage at the troika’s demand to cut private sector pay by 25 per cent and some pensions by as much as 35 per cent.

Their reluctance has angered euro zone officials, who point to a succession of broken promises in the first bailout.

Greece is on the cusp of a debt restructuring deal with its private creditors, but that arrangement is conditional on a new aid package.

With a general election expected in April, EU authorities are concerned Greek leaders won’t agree to a new austerity drive for fear of a voter backlash.

With positions hardening over the weekend, technocrat prime minister Lucas Papademos called his coalition partners to emergency meetings last evening after six hours of fruitless talks with the troika on Saturday and more talks yesterday.

The effort to break the deadlock came as Luxembourg’s prime minister Jean-Claude Juncker, leader of the euro group ministers, warned Greece was in danger of bankruptcy if the deal was not done.

Mr Juncker’s remarks, to German magazine Der Spiegel, reflect the view that EU authorities are increasingly willing to accept an uncontrolled default by the country, something that could create a spiral of contagion in markets.

“If we were to establish that everything has gone wrong in Greece, there would be no new programme, and that would mean that in March they have to declare bankruptcy,” Mr Juncker said.

Greece should not expect continued solidarity from its sponsors without the necessary reforms, he added. The danger of default should encourage Greek leaders to deploy “muscles where they now still have some symptoms of paralysis”. His remarks were in keeping with a tough message from euro zone ministers to Greek minister Evangelos Venizelos on a teleconference on Saturday afternoon.

“The Greek government has responsibilities and knows it,” said French minister François Baroin. “The question is not about the Greek government’s calendar, but the parliamentary calendar to put in place the reforms.”

After the lack of progress in the talks led the ministers to cancel a meeting scheduled today in Brussels, the ministers made it clear in the call that they will not sign off on the debt restructuring deal until Greek leaders guarantee to implement all promised reforms.

Leaders of the three parties in the Greek coalition government must respond to proposals made by the country’s international lenders for a new bailout deal by noon (10am this morning Irish time), a spokesman for the Pasoksocialist party said last night.

“Political leaders should give a response in principle tomorrow afternoon [to the European Union],” Pasok party spokesman Panos Beglitis told reporters. They would later discuss the plan by the troika of international lenders at a meeting chaired by Mr Papademos. “There will be a political leaders’ meeting chaired by Mr Papademos tomorrow afternoon,” Mr Beglitis said.

In spite of mounting difficulties in the talks, the aim remains to initiate a week-long debt-swap transaction to cut Greek debt by €100 billion next Monday.

However, bondholders will not sign up to the deal until Greece secures an additional EU-IMF credit line of €130 billion. That sum is unlikely to be sufficient to reduce the Greek national debt to the target level of 120 per cent of gross domestic product by 2020.